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The Large-Scale Manufacturing (LSM) growth is back to the merry ways – registering 12.7 percent year-on-year growth for August. The cumulative Jul-Aug growth clocked in at 7.26 percent, but one has to be mindful that this comes off a low-ish base, as the second Covid wave had hit the country around the same period last year, leading to some disruption.

The August index is clearly the highest ever, keeping in line with a trend that started in September 2020. That said, the August value is not a runaway winner – as it is only better by a few decimals from the highest August index achieved in 2017. Last year August LSM index was at a multiyear low primarily due to Covid – and the 12.7 percent year-on-year must be viewed in that light.

In terms of sectoral contribution, automobile continues to lead the way with more than two-third of the cumulative growth, with less than 5 percent weight in LSM composition. The August growth is by and large built on low base as automobile production that had completely halted last year had only started to recover around August 2020. The August 2021 car production numbers are still some way off the peaks witnessed in FY18.

September car production numbers are encouraging – at multi-month high – registering highest production since January 2019. The Q1FY22 production will be nearly double than same period last year, but not all of it makes it way to the LSM numbers for various reasons. Whether or not the automobile demand takes a serious hit, like the one witnessed for much of 2019, as inflation concerns rise and chances of rate hikes increase with every passing day, will be known in due course. But for another two to three months, automobile will continue to lead LSM growth contribution, until the high base kicks in.

The two key construction industries – steel and cement remain on the upward trend, and that comes off a firm base, unlike some other sectors. As people finding it difficult to make ends meet, it will be an intriguing watch if low-cost housing continues with same fervor it started. Should there be a change of heart in Islamabad as regards PSDP spending, the demand could take a hit in the quarters that follow.

The three big sectors in terms of weight food, textile and petroleum have yielded low single-digit growth numbers, and not essentially from a high base. A significant number of industries are still producing way off the peaks seen in FY18. The same also gets cross verified by the use of HSD, which by and large indicates transportation of goods – as the volume remains lower than the high seen during FY16-FY18. There appear no signs yet of the industrial activity reaching the optimal. Not at least the large-scale.

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